Turkey’s Recent Ability to Create Jobs Stands Out in International Comparison, but the Challenge is to Sustain this Performance

ANKARA, January 23, 2014— The Ministry of Labor, The Ministry of Development and the World Bank today launched a new joint report on “Good Jobs in Turkey”, and presented the Bank’s recent regional report “Back to Work: Growing with Jobs in Europe and Central Asia”. Minister of Labor Faruk Çelik; Minister of Development Cevdet Yılmaz; and World Bank Country Director Martin Raiser delivered the opening remarks during the Reports Launch event.

The countries of Europe and Central Asia have struggled to create jobs even before the 2008-2009 global financial crisis. By contrast, Turkey has done remarkably well. The presentation focused on the reasons for Turkey’s good performance and the lessons that could be learned for other countries. At the same time, a closer look at the labor market in Europe and Central Asia reveals that Turkey shares a number of challenges with its regional peers in sustain the creation of good jobs into the future.

"Turkey's labor market performance after the crisis has been remarkable. From 2009-2012 the country created some 3.5 million jobs while employment in the European Union fell by 2 million during the same period. While Turkey’s demographic and structural dynamics are different from the majority of European countries, others can still learn from Turkey’s experience and policies, while Turkey can benefit from preparing in time for the future challenge of aging”, said Martin Raiser, the World Bank Country Director.

According to Rebekka Grun, lead author of the Turkey jobs study, “Policies that facilitated labor reallocation and targeted reductions in labor costs have been instrumental in the fast creation of good jobs in Turkey. Looking forward, further reforms that support the development of a competitive and flexible labor market will be critical for ensuring that this trend continues but also that the process supports the inclusion of important groups such as women and youth.”

The World Bank’s regional jobs report finds that only 52 out of every 100 working-age people in Europe and Central Asia are employed currently. And what’s more, up to 60 percent of the unemployed have been searching for jobs one for more than a year. According to the report, to address the jobs challenge in the region, policy makers need to regain the pre-crisis momentum of reforms towards modern market economies, and reckon with the distinct demographic pressures of the rapid aging of the population in most European countries and the large number of youth entering the labor market in Turkey and Central Asian countries.

The regional report puts Turkey among the group of advanced reformers with better employment performance in the past and more promising prospects, together with countries like Poland and other New Members of the European Union.

“Turkey has done well in regional comparison, but the challenges it faces in sustaining the creation of good jobs are quite similar to those faced by other countries in the region”, said Omar Arias, one of the lead authors of the regional report. “This includes the need for an improved business climate to encourage companies to invest and create jobs, more flexible labor markets, more job-relevant education and training to ensure workers have the skills demanded by employers, and efforts to get more people into work, particularly excluded groups such as youth, elderly people and women.”

The key lessons for policies to create more and better jobs are:

Enable private-sector led job creation: In the region, only about 10 to 15 percent of high-growth companies, often young (often called “Gazelles”), account for about two-thirds of new jobs created. In Turkey, Gazelles should be nurtured more by making it easier to do and grow business. This includes regulatory reforms, access to finance, a better insolvency framework, reforms of the tax system and further improvements in connectivity and infrastructure.

Helping workers acquire the right skills: Companies now place more emphasis on higher-order (cognitive and “soft”) skills, over routine, manual skills. These trends are also visible in Turkey. Investments in early childhood education, improved teaching quality, and efforts to reform vocational, secondary and tertiary education in close collaboration with businesses will help improve the relevance of skills of Turkey’s young labor force.

Eliminating disincentives in taxes and social protection, and barriers to employment: On average, labor taxes amount to 37 percent of labor costs in Europe and Central Asia. Turkey’s payroll taxes are below the regional average, but employers face other barriers such as relatively high minimum wages and high costs of hiring and redundancies. Lack of child care and flexible, part-time contracts are making it more difficult for women to enter the labor market, while early retirement provisions may encourage informality. Further steps to reform the labor market are needed to ensure Turkey makes full use of its demographic dividend.

Removing obstacles to internal migration: Labor mobility within countries in Europe and Central Asia is low and prevents worker relocation to places with greater job creation potential. Other countries could learn from Turkey in this respect, which has experienced tremendous internal migration, facilitated by massive government supported investments in housing, the reform of social security to ensure universal access and improvements in municipal services.